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For years officialdom wanted nothing to do with the crypto space. Whatever bitcoiners said about changing the world, policymakers largely ignored it.

Even during the 2017 initial coin offering (ICO) boom, which involved plenty of money and plenty of fraud, regulators were arguably slow to react, issuing market guidance only months after the fact. Crypto was hardly a priority.

In 2021, everything changed.

The fight in the U.S. Congress over a crypto tax provision in Biden’s infrastructure bill was widely seen as a turning point. For the first time, politicians saw an opportunity to raise revenue from a flush industry. And crypto realized it had to fight like any other D.C. interest group.

At the same time, central bankers started talking about crypto’s systemic importance, even comparing digital assets to the subprime mortgages that blew up the world economy in 2008. The International Monetary Fund (IMF) even likened crypto to COVID and climate change.

Just last week, the SEC approved Bitcoin’s first exchange traded fund (ETF), another major milestone on the road to adoption.

In short: Ignored no more.

CoinDesk’s Policy Week package – part of a wider look-ahead initiative we’re calling Crypto 2022 – is a comprehensive look at how crypto is coming under increasing regulatory and legislative scrutiny and how the industry is responding.

We have special reports on how the crypto lobby is muscling up in D.C., the outlook for decentralized finance (DeFi) and stablecoins, and how non-fungible tokens (NFTs) are likely to interest the SEC next year. We report on the U.S. picture and check in with China and the EU as well. We look at where exchange-traded funds (ETFs) are already allowed and barred. And we hear from policymakers, entrepreneurs, advocates and detractors, academics and acolytes, all in the name of offering a guide for our readers, viewers and listeners.

This is Policy Week. Dig in.

New York Attorney General Letitia James ordered two crypto lending platforms to cease their activities, which were determined to be unregistered and unlawful.

• The platforms are in violation of offering securities and/or commodities without having registered with the Office of the Attorney General (OAG), according to a statement that didn’t identify the companies.
• Three further platforms were asked to provide information about their activities and products. That includes data related to loan-to-value ratios, collateral options and payout processes, the minimum and maximum amount that can be borrowed, the lending rate and all fees payable.
• The actions have been taken by the OAG in accordance with New York’s Martin Act, an anti-fraud law that gives the Attorney General authority to investigate any company deemed to be trading securities in the state. For the purposes of the Martin Act, cryptocurrency is classed as a security, and therefore subject to its provisions, according to the statement.
• Crypto platforms offering investors in New York a rate of return on the assets deposited with them must, therefore, register with the OAG.
• In example letters attached to the release, names of the companies contacted were redacted. However, the file names associated with the letters initially identified Nexo and Celsius Network before being changed.
• In an email, Nexo said it does not offer its Earn Product and Exchange in New York and blocks users based on internet address location. “It makes little sense to be receiving a C&D for something we are not offering in NY anyway. But we will engage with the NY AG as this is a clear case of mixing up the recipients of the letter.”
• Celsius did not immediately respond to an email seeking comment.

UPDATE (OCT. 18, 15:50 UTC): Adds file names, company contacts.

UPDATE (OCT. 18, 16:03 UTC): Adds response from Nexo.

On October 18, the New York Attorney General Letitia James announced cease and desist letters to two cryptocurrency lending firms. Another three firms received requests for information on corporate ownership and handling of user deposits.

The Office of the Attorney General (OAG) redacted the names of the firms under scrutiny. However, the cease-and-desist retained the names “Nexo Letter,” while the request for information was labeled “Celsius Letter” upon initial publication, though the OAG subsequently corrected its files. The names implicate two of the largest lending platforms.

Source: NYAG

The Nexo cease-and-desist letter says that the OAG considered the firm’s failure to register as a broker-dealer a violation of the Martin Act. BlockFi, a leading competitor, has been unavailable in New York since 2020. 

The cease-and desist-letters give the two firms 10 days to “cease any and all such activity and confirm to the OAG the activity has ceased, or explain why the OAG should not take further action, including seeking all relief permitted by law.”

Source: NYAG

The Celsius letter was slightly more restrained, giving the firm until November 1 to provide information as to its ownership structure, its investment strategy and its means of custody for crypto deposits. 

As to the other three firms that received NYAG letters, they remain unidentified. 

There has been a wave of state regulators clamping down on crypto lending platforms. This summer, New Jersey-based BlockFi was the first to receive a round of cease-and-desist from state securities regulators, followed by Celsius. 

Nationally, the Securities and Exchange Commission has not overtly stepped in on existing platforms, but Chairman Gary Gensler has indicated that they are on the commission’s radar. The SEC also apparently quashed a new lending offering from Coinbase, which has rankled the firm enough to cause it to promote the creation of a whole new regulator for crypto. 

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Stablecoins such as tether (USDT), now a significant investor in the $1.1 trillion commercial paper market, could introduce new risks into short-term securities markets, warned global ratings agency Fitch Ratings.

At the current rate of growth, stablecoin issuers’ holdings of short-term debt instruments such as commercial paper – a commonly used type of unsecured debt issued by corporations, typically used for the financing of payroll, accounts payable and inventories – will grow to exceed that of money market funds over the next two to three years, according to Fitch.

The scale of run risks and stablecoin-related turbulence posed to commercial paper markets will depend on the evolution of regulations affecting the crypto asset class, Fitch said in a press release.

“Stablecoin-related turbulence could both affect the CP [commercial paper] market itself and transmit shocks to other market participants. Risks could be aggravated if the infrastructure and partners used by stablecoin operators to engage with traditional markets lack a record in the smooth handling of transactions during periods of market stress or volatility,” said Fitch, mentioning both USDT and also the potential impact of the Facebook-launched Diem project (formerly known as Libra).

Tether, which was fined $42 million last week by the Commodity Futures Trading Commission (CFTC) over misleading claims about the stablecoin’s backing, holds about half of its $62.8 billion of reserves in commercial paper, according to a disclosure made by the company in June 2021.

Carpe diem

The prospective launch of Diem’s dollar-backed stablecoin could further spur the sector’s market value growth, according to Fitch.

Diem had previously proposed to hold at least 80% of its reserves in short-term high-quality government securities and the remaining 20% in cash, noted Fitch, with overnight sweeps into daily liquid government money market funds.

“We believe it will not directly affect the CP market due to the government-securities focus of Diem’s declared reserve allocation plan, but alternative allocation strategies remain possible and, depending on its scale, the operator may become an important participant in other short-term markets,” Fitch said.

Fitch did not respond to interview requests by publication time.

Collin Myers, former head of global product strategy at ConsenSys, has been working on a new project since April of this year. He is building a “trust-minimized” crypto staking protocol at his startup Obol Technologies.

Sharing the news exclusively with The Block, Myers, founder and CEO of Obol, said the project has raised $6.15 million in a seed funding round. The round was led by Ethereal Ventures, a venture fund set up by ConsenSys founder Joseph Lubin, with participation from Coinbase Ventures, Acrylic Capital, and many others.

With fresh capital at hand, Obol plans to expand its team of three members to around 12. The project also aims to launch a testnet for staking on Ethereum 2.0 soon and support more public blockchains in the future, said Myers.

The Obol network is utilizing secret shared validator (SSV) technology, a primitive conceptualized in collaboration with researchers at the Ethereum Foundation. SSV helps split a validator key (effectively the password for operating a validator) between multiple operators. A validator is similar to a miner on a proof-of-work network, but one that stakes funds in order to process transactions on a proof-of-stake network.

“SSV is kind of similar to the concept of a multi-signature wallet,” said Myers. “But now it’s being applied to a validator and something that we’re calling a multi-operator validator.”

The Obol network will essentially allow staking with multiple validator operators. “The longer term vision here is to prevent single operator failure,” said Myers. “So in the future, like if one individual staking provider or two or three providers go down, the Ethereum network should still continue to finalize and it should still continue to validate.”

Myers said he believes that projects like Lido will eventually migrate their validator infrastructure into a protocol like Obol. Lido is currently the largest liquid staking provider on Ethereum. Last month, Lido provided a $100,000 LDO grant to Obol to continue researching and building the protocol.

The testnet of the Obol network is scheduled to launch early next year. Post a successful test, the project will decide a mainnet launch schedule, said Myers.

Lubin called Obol a “very important” project in a statement. He said, “soon the majority of staking in public networks will be done in a multi-provider fashion, through the SSV construct.”

“SSV will be a core primitive of the information infrastructure of Web3, and Obol is uniquely configured to build the sector leading SSV solution, having been deep in the space for years,” Lubin added.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Cryptocurrency exchange Bakkt, which is majority-owned by Intercontinental Exchange (ICE), was trading down more than 4% in its first day of trading after completing a merger with special purpose acquisition company (SPAC) VPC Impact Acquisition Holdings.

• Bakkt, based in Alpharetta, Ga., and founded in 2018, began trading Monday under the ticker symbol “BKKT” on the New York Stock Exchange. VPC Impact Acquisition Holdings is affiliated with Victory Park Capital. VPC impact holders approved the deal with Bakkt last week.
• “Today, Bakkt’s vision – to connect the digital economy – reaches new heights, and we’re excited to continue our momentum as a public company,” said Gavin Michael, CEO of Bakkt, said in a statement. “Our platform sits at the intersection of cryptocurrency, rewards, loyalty and payments, and we look forward to accelerating the plan that is already underway” that includes “expanding the access and utility of digital assets.”
• Bakkt announced it would go public through a SPAC deal with VPC in January.

ProShares announced it will launch its bitcoin futures-tied exchange traded fund (ETF) tomorrow, October 19.

Last Friday, the firm filed a post-effective amendment prospectus stating its intention to list on Oct. 18. Now, additional public documents say that “the Fund is scheduled to list and begin trading on the NYSE Arca on October 19, 2021.”

The ProShares Bitcoin Strategy ETF will trade under the ticker $BITO. It will invest mostly in bitcoin futures, though it will not directly invest in the cryptocurrency. The SEC has yet to approve a spot-based bitcoin ETF, and many proposals have been cast aside due to concerns of price manipulation in the bitcoin spot market.

The listing of a crypto-tied ETF in the U.S. has been much anticipated in the industry. ProShares CEO Michael L Sapir said BITO will lower the barrier to entry for those looking to gain crypto exposure.

“BITO will open up exposure to bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs, but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider and creating a bitcoin wallet or are concerned that these providers may be unregulated and subject to security risks,” he said in a statement.

ProShares will be first to offer such a product in the U.S., winning the race to list started by Securities and Exchange Commission (SEC) chair Gary Gensler, when he expressed an interest in looking at crypto product proposals filed under the Investment Act of 1940 tied to bitcoin-futures. Those still jockeying for position include Valkyrie, VanEck, Invesco and BlockFi, among others.

ProShares affiliate company, ProFunds, was also the first to list a bitcoin-based mutual fund.  

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Circle, the issuer of the USDC stablecoin, has expanded the coin’s support to the Hedera Hashgraph blockchain network.

This makes USDC the first stablecoin available on Hedera. Launched in 2018, Hedera is a proof-of-stake blockchain network owned and governed by different organizations, including Google and IBM. These organizations run “permissioned” nodes on the network. Over time, Hedera aims to move to a permissionless model.

With USDC’s availability on Hedera, the network hopes to bring decentralized finance (DeFi) applications to its platform. Last month, the Hedera Governing Council earmarked 10.7 billion HBAR tokens (worth nearly $4 billion at current prices) toward the development of the Hedera ecosystem, including for DeFi applications.

“With the USDC launch on the Hedera network, The HBAR Foundation is taking an important step toward fulfilling its mission to ease the development and launch of DeFi applications on the network,” said Shayne Higdon, CEO and executive director of the HBAR Foundation. “This integration aligns well with the growing tokenized economy on the Hedera network and will help drive new projects. We look forward to working with the community to bring these applications to market.”

Stablecoins play an essential role in the DeFi market. Traders use these coins to trade with and lend them out to earn high yields on DeFi protocols.

With the addition of Hedera, Circle now supports USDC on a total of six blockchains, including Ethereum, Algorand, Solana, Stellar, and TRON.

USDC is the second-largest stablecoin in the market, after Tether (USDT). It has a total supply of nearly $33 billion compared to USDT’s over $72 billion supply, according to The Block’s Data Dashboard.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Cryptocurrency mining company BIT Mining (NYSE: BTCM) is investing a further $11 million in the Ohio site it is developing with Viking Data Centers.

• BIT Mining said $9.8 million will be paid in cash and rest in cash or shares.
• That’s on top of the $12.4 million it agreed to invest in September.
• The investment will take BIT Mining’s interest in the site to 55%, with Viking at 45%.
• As a result of the investment, the site’s power to capacity will climb to 150MW, up from the 85MW originally planned.
• The firms expect to complete the process by March 31, 2022.

Read more: BIT Mining’s Subsidiary BTC.com to Exit Mainland China

ProShares will launch a bitcoin futures exchange-traded fund (ETF) tomorrow, the New York Times reported in its DealBook newsletter.

• The U.S. Securities and Exchange Commission (SEC) greenlighted bitcoin futures ETFs on Friday.
• ProShares filed for its Bitcoin Strategy ETF this past summer. The fund is linked to bitcoin futures traded on the Chicago Mercantile Exchange.
• With the SEC mulling over dozens of bitcoin ETFs, Chair Gary Gensler has made it clear that funds linked to the futures market rather than the underlying asset are more likely to win regulatory approval.
• NYSE head of exchange-traded products Douglas Yones told DealBook, “This is an exciting step but not the last.”
• News of long-awaited approval for a bitcoin-related ETF sent the world’s largest crypto by market value to levels not seen since April. Bitcoin climbed above $60,000 for the first time in nearly six months on Friday.
• There will be hopes that the debut of a bitcoin ETF on the NYSE will open the floodgates to a stream of similar products winning regulatory approval and accelerating the flow of investment into crypto.

Read more: Grayscale Said Close to Filing to Convert Bitcoin Fund Into Spot ETF: CNBC

UPDATE (OCT 18, 11:51 UTC): Adds bitcoin futures to headline, quote in sixth bullet point, background starting in third.